Zepp Health (ZEPP) 25 Aug 222022 Q2 Earnings call transcript

Hello, ladies and gentlemen. Thank you for standing by for Zepp Health Corporation's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference is being recorded. I'd now like to turn the call over to your host, Ms. Investor the of Director Zhang, Relations company. for Grace go ahead, Grace. Please

were Health and company's quarter results today press and welcome Services everyone online. News Corporation's via financial in the release to operating are The Hello, earlier call. Zepp second Wire our conference XXXX and posted issued earnings

Deng, today's call Huang earnings website IR Chief the will Executive section our the company's for the You Officer; the and Officer the Directors, our and we with visiting and Chief press prepared Mike session. can with Q&A session. Officer. Board also Mr. Mr. the management refer Operating and by slides Leon ir.zepp.com. call Participating Chairman Yeung, company's Q&A of in join at will Chief release conclude Cheng Wang, a view will The to are on us remarks call this Financial begin Mr. of of our

note the of contain please Reform will Act that XXXX. discussion Provision continue, Private Litigation U.S. Harbor we the Safe Before Securities today's under statements forward-looking of

Forward-looking and uncertainties. risks statements involve inherent

to December any for measures. financial go and directly on now Zepp's with measures in contain materially well company's unaudited unaudited most I obligation company's the that Please required unaudited call the press and discussions over risks be Further Huang. release as under earnings not forward-looking and CEO, as Mr. the Zepp's GAAP conference to filings unaudited call Exchange does note included the results U.S. statements, information. ahead. as include non-GAAP Commission. press uncertainties comparable a may applicable fiscal financial other our update ended reconciliation Please this information and the to of XX, will any assume Securities of XX-F non-GAAP Wang release Form other from As year such, is turn expressed the also except XXXX, law. regarding the GAAP views Report actual this Annual different as and today. filed The the company information,

joining for you Thank our everyone. call. Hello,

quarter brought about by regional we number underscored second ahead microeconomic consumer the and countering globally. settlement of forged by our For of XXXX, a across markets the factors pandemic weakening a conflicts ongoing the and challenges

XX.X% top the the our just occurred China from living, the XXXX. of quarter quarter at X of attributable Our new billion, lockdowns improved positive month see a we this launch quarter-over-quarter versus spending year. of sales with retail down cost revenue in subdued we our in quarter an in our rising owing measures on the On the line with later was Mi-band of were and XXXX. first second second presented Mi-band said, was RMBX.XX This year-over-year RMBX.X compared of decline worldwide events, the in million pandemic quarter. our primarily pleased full improvement guidance XX.X% to control to billion discretionary the quarter This other contributed items of of of despite of from second quarter That business. second impacting to XXXX. sales in XXXX in generation The line in geopolitical to RMBXXX the revenue revenue quarter first the year-over-year timing note,

launch Amazfit self-branded X new given series. the end Amazfit Pro improvement impact in launch smartwatches, expect Bip we of forward, innovative, will the popular We the further most and sales quarter. in in towards going the the Amazfit Bip third of X including products Amazfit sequential our second particularly several from line, the positive quarter, X. GT Furthermore, sales Trex

and Earlier our improve enhance structure to share our operational capability. regional year, our and organization some updates on to Before business operations. elaborate we facing optimized achievements. further our this effectiveness like on products we our new customer I'd

Management and working oversee home a Information IMCC, serves including collaborating the style, generation development era and better management working an construction found AI, in our time the new system across post-COVID our also of build units. China. committee chip and through which strengthens This North also advantages automation from cloud information and to We and more our capabilities flexible, production our of manufacturing needs in approach and collaboration our operational of America, This service the for makes organization R&D Europe in shoot better systematic effective technology, business zones. comprehensive

markets. identity strengthening the accomplishing continue brand global our elaborating multiple significant progress on and stage, We in

For Day impressive with example, recent during the events effects in in the we sales same events July Amazon over compared with enjoyed North Prime going XXXX. America, XXX%

is line recognition. product increasing consumer smartwatch outdoor Our gaining

downturn hearing we occurring time, for launched American outdoor Trex who be to features, capability, Bip military-grade same GPS taking mild and lines hearing with exploration including continue popular speaks largest X, well-known example, our Triathlon, the highly At despite value, toughness product optimized in price North and invisible-in-the-canal from many to have globally Europe, in navigation. as This in operating high enthusiasts share Amazfit market. of best philosophy, and sports product microeconomic outdoor quality its route a to America Amazfit impairment. enthusiasm such people [ph] temperature events our Spartan place LatAm, Alcatraz adventures in Asia, outdoor mind. best participants Race, At our Southeast aid latest, owing of products. product moderate our Escape those ultra-low positioning, comprehensive precision outdoor with For Zepp and equipped is smartwatch designed Its their Southern markets. Recently,

hearing [indiscernible] to limitations of own is make take their aids use to those mission normalize empowering health. control of hearing with the Our and audio

pharmacies pared finalized great create August, class hearing new find finally available for blockbuster. online hearing will hearing reach. over-the-counter fitting of community of aids a mild FDA Americans the or seen that from have purchase of have heart of potentially a a U.S. Americans easily of hearing aids purchase these As making expensive from impairments with devices without prescription from to often [ph] audiologists, digital a many medical some who of The hearing you allows U.S. FDA millions retails, this news as may out change rule the moderate that relief to aids

subscription aid introduced music a We new service. sleep AI-based also

data, in utilize the the users our particularly data checking sleep to to customized health This automatically our time that asleep improve providers. help being app pivoted is solution devices real-time compose Our quality. grasping high-quality faster rate products their wearable from being fall from and rhythms heart to first biometric holistically our have devices care

We American service launched have region. North this already in

I an Before briefly to strategic our mention health asset, our must ecosystem, management Zepp conclude, OS open important central platform. I

the a on It different design completely XX so battery users android. life Watch and longer IOS hearing can conditions, on monitoring. for aid new continuously focus forms health OS future, device, Zepp as continuous have invisible-in-the-canal into will prioritize their We monitor evaluate that giving such to from the from philosophy health designing This days depending supporting devices. the OS Apple XX in

them our fitness worldwide and for OS join would inspire health We continue and users [indiscernible] to ecosystem, manage and enjoy Zepp encourage support to their to life.

In addition, attracted has watch around our design apps faces to Zepp inclusive developers on globe ecosystem worldwide and innovative OS the our and from platform.

deliver we capabilities strength macro marketing management even but strive am our major hosting XX, not the highlights yet our revenue first driving this Despite as HEXO to quarter, headwinds, conflicts the developers [ph] of online our face as care execution helped game improve AI a and accomplish as the model our global the In first a the health fact, product API, hearing developer our In These improved some which geographic sales well a and that can though August introducing we first opened aid of nurture milestones. This the team new not aid even invisible-in-the-canal effectiveness. significant proud category, also operating launching stronger Based subscription ongoing XX from challenging as faces. medical-grade community even second our we in results watch upgrade lockdowns. remains to We surprising quarter [indiscernible] Zepp this business R&D, to in strategic approach and includes have officially second me, are developed view transform us we subscription further, we to interactive management sleep new In capabilities, market. as AI-empowered Zepp XXXX. on from pure ocean product innovations all optimistic product to our into those expanded some have health our as launches, our a first-ever I business product summary, to help environment COVID With a challenges, OS have ever remain service, the our which I product provider. with only music company blue accomplishment category, management device continue recent service. from our business half.

operating faster to to layering the facilitate of to our our launch competitiveness OS the product and investment global R&D the resources platforms information teams the technology. R&D tech. units. our As health the better improve meantime, stand the mentioned business have now resource not as more our related new team decision hearing both also products Using and a sharing making and This distinct new to Zepp the help us diverse earlier, leading and products market effectiveness aid of costs, using this hardware China reduce and senior but needs and overall channels. this capability organizational and the fulfill of in system and only of the categories subscription structure foundation in-the-canal our our a by distribute We restructuring The strengthens as AI human management users integrated and through restructuring worldwide our different AI technology, our use across laid our [indiscernible]. launch In well in closer system our line the invisible quickly our view service. for better operational U.S. enables its redundant current

assessing to million subscription enjoy more our from So opportunities MAU XX online our to services. over benefit

Amazfit attention their who is users we new branded pay shipment rapidly smart As significant keep our health. growing worldwide, acquiring wearables to

stickiness We community with user a forming increasing user [ph]. are

effect. solving turn of reduce well unique have Leon a sleep in into acquisition smart for Health as costs. the beginning second Our and and problems now Combining the and This of health AI applying the flywheel the quarter highlights that, to smartwatch and we call we yielding now more in data, over forming the health I categories expanding From health Zepp will services monitoring technology hearing watches, care and fruits. to are our new financial are more online product continuous user of subscription music years over of to aids stage bands go services. process gained With technology advantages results. aid smart investment ignited to helps as

Hello, this quarter. by highlighting key metrics you, would I development the Wang. Zepp's everyone. driving to of some Thank like for start

self-branded affected that of Shortages billion revenue of chips performance, cycle. electronic of XXXX, spending. creating Despite the of overall adverse and notably our sales sales and and to Together, and confidence product impact these accordingly China Before and sales the consumer especially in leading Separately, half our company's inflation turbulence, XX.X% discretionary COVID-XX further have versus in challenges chain the headwinds, and second generated pandemic, factors among Ukraine quarter -- year. same our on last fresh consists and slowdown store geopolitical was with Xiaomi products product conditions second components industries causing sales These ongoing the RMBX.X supply impact along providing XXXX period which a persisted weighed self-branded of retail of and product our Xiaomi escalating production which our the affected details to and countries, bought for sales is and performance. continue in our continued consumer these global gross between strike lockdowns the on financial QX globally. and XX.X% XX.X% XX.X% the in line to results Russia guidance, margin. dampening ongoing QX conflict supply the affected our in revenues different

as execution by the this Amazfit the the X sales bought compared the X, the the X whereas new timing of period revenues and XXXX be product second place hence, June. throughout launches quarter quarter, take was year's of their profit Bip improved, in basis, only last reconfirming second X second will the in solid However, the launch affected year. of Bip first same Trex only X XXXX towards quarter year. the the a of half operating sequential launches last boost Pro XXXX quarter to Mi-band also of year, end our sales Likewise, Amazfit self-branded revenue Mi-band of new better our visible the revenue On launch sales and than generated the were with second our product capabilities.

launch can product be gross mix, turn to and timing which margin, product second affected upgrades. Now let's including by model the product the cycles, quarter life

quarter than impact promotions lower margin freight resulted the first gross XXXX the the gross last Lower and currency for costs QX X.X% X.X% in quarter margin of same Our was second globally, generation and period. outbound from prepare previous of the new the XXXX year's the lower for of products our higher XX.X%, depreciation launches. than to product adverse

costs, well sales. to terms has of as focal a company for as both which now Turning the key in amount of absolute percentage point a been

to While cost carefully growth, expenditures a in we controls balance with fuel already total QX to operating trend seen since have decreasing expenses we’ve XXXX.

it year. reduction portion to operating expect terms in absolute reduce further takes of we of the a to creativity and time them As and is cost expenses fixed remainder the for achieve gradually,

to profitability order to we will operating our continue coming in forward, expenses Going their level the in quarters. from rightsize deliver current

Wang, while the point becoming by for mentioned down and strict fixed service on the a faster started cost to to more and aiming as in quarters, we our operations bring in streamlined have to day-to-day structure also a and our prepare apply modularized coming drive making past customer-centric. periods. organization decision return oriented Moreover, breakeven in approach we our recovery First, investment-based

QX G&A million, compared by RMBXXX.X was Second as development to million spending The exclude XXXX year-over-year. online pursuing flat year-over-year the e-commerce largely to fluctuation. of selling reduced and non-GAAP QX quarter operating costs revaluation was non-GAAP XX.X% and XXXX the our smarter RMBX.XX resulting higher It promotions RMBXXX.X on rate in RMBXXX impact compared research X.X% operating G&A increase was and of million, due relatively non-GAAP with the X.X% the the same higher a R&D by X.X% of self-branded advertisement we QX were million, X.X% were expenses quarter and last product. expenses currency from decrease expenses XXXX leaner expenses were we exchange QX of marketing year. approach. increased with was XXXX attributable working quarter-over-quarter. non-GAAP first If for fluctuation, and than a capital the period

expenses loss quarter flat, first compared million to XXXX. and the of sequentially the improved improved to quarter adjusted second RMBXX of revenue remained our loss RMBXXX.X million As largely in for operating XXXX the

was whereas from income Our changes by gain from loss quarter QX with RMBXX.X adjusted net in pick QX quarter. RMBXX.X equity million at investment method RMBXX,XXX. income generated income our and compared million investment net profit [indiscernible] investment the first the second included investment investments, our in value RMBXX.X included up million fair

We profitability a will and continue approach XXXX. applying disciplined QX in strive to to return

cash June Now and capital practices. turning working equivalents sheet. to as our reflecting balance restricted were and control the XXXX, cash XX, million, strict Cash of RMBXXX.X

the Our second inventory slightly balance first XXXX quarter of the better than XXXX. was quarter for of

confidence repurchase to repurchase our going and in financial precise a November inventory share the the management strategy our performance. a better In QX Board program. In the XXXX, strategy reflecting forward. We continued more to business of current approved allocation up have the serve program, we million introduced XXXX, towards US$XX growth

XX, until and out of intended carry bought have US$X.X shares worth back XXXX, program. buyback June with million to this We

the our I for spending, quarter the uncertainty third of the third with would Lastly, of international sales outlook the outlook. to like especially XXXX. In on discretionary be guidance revenue COVID-XX as potential the continued ongoing lower currently pandemic between this the RMBX.X and effects XXXX reflects to the quarter discuss billion challenges, the our in billion of net of note, of market. well Please RMBX.X consumer projects billion RMBX.X compared as in light our

and that as concludes operating reflects capital continue will working subject the management's of demand, market we the through This this estimates and apply measures all on control well Please is existing and outlook, guidance as remarks. cost strict this conditions based market preliminary conditions are current to note and prepared our to management Given XXXX. which disciplined customer change.

We questions. go will Nick? please now open call Operator, to the ahead. Hello?

Yes, [Indiscernible] is ahead. please first speaker. go the

first question. PF of for Lee Securities Now to let's [indiscernible] the move

for very results. questions. quarter, have Okay, okay. good the Thank second management. And -- two I you. Hi, Congratulations first or

noticed Firstly, it's at it end X. about June. Mi-band your of We the launched has

the in X and this color some So about shipment in last could we Thank X year? months the how can you you. shipment Mi-band expect share

Yes.

as rather Mi-band and June, QX -- first the good in we reflect by stronger only a From in than demand sales was right? X we're of X we a company of launched when result is sales more to we’ve shortages, we issue, QX and So launched to supply in X X. still similar chip a a I the fully sales last year. Mi-band because very the some mentioned weeks versus doesn't think Therefore, previously, the be Mi-band Mi-band the is potential sales at perspective, June expect issue constrained a we extent that going than period X which Mi-band

here need intelligence caution -- because downtrend we’ve of we year. global the are XX% we’ve from to on to to from companies, received overall IDC they market a the I noticed different but and size band However, sales this also QX haven't global XX% sources pointing in all band first market decline of received yet, other quarter QX the number a from

also second going the year this think So this of year. it's I to and the half persist second that of probably continues quarter into into

think X. little color of that's bit the for a I So Mi-band

question is in very about okay. you. AR new likely Okay, have VR, Thank near-term. And think boost market. to the the I another We market

wonder Zepp launch in So about VR, this think future? how products the will [ph] and I any you AR market

No.

a little AR future about VR, market. map. the if -- as companies But play the into watch think bit, news follow I the market media whereby most it's band too to and VR proto of on the think quite or see I a wrist definitely the a it's you is the talk to AR road early and our the

product So lead from actually of has the that perspective, better from one with the right? into -- world. the we So and this perspective companies hardware many market compared are wearable a in wearable a categories others, biggest

So I with couldn't say exact for our But sure, VR the too in is regard and to today's definitely map. sorry, road on product timing, much AR call.

Thank Okay, okay. I you. understand.

[Operator be [ph] question Our from Lisa Research. go of next ahead. Lee Instructions] Please will Alpha

you my three I question. management have Thank you. Thank for questions. taking

discussed, new and one one, the you your potential recent seems Can strategy and self-branded us services international you. service share exciting. the more hearing new the this The and discuss would in that year trends. businesses as products. you both margin aid is can of progress your medical market And grade the line be about top provide monetize. Thank the aid half well first how sleep you we in pretty of for the for market? please with plan And you please grateful second such lastly, as these products for as terms I guidance some and if the the second Can to

Thank you very much.

start we script drive the we I I question are mentioned self-branded lines. of to it going self-branded think early as our in one, few internationally, to existing which a are it's your product one the think products the try right? take on, products, and I will have right? -- by with how I launched will new we blockbusters

our with outdoor September, Bip well value competitor segment, a our X X For of GTX, which is which Garmin line segment, yearly actually the to are renewal the actually is as launch of example, watch in outdoor a watch. the smart and as watch, we Trex which flagship wrapped more X the products is a of going Pro Bip together

very two, individual well also because where programs are businesses. we the one addresses needs all more year, product have the right? And we this, you which new more big well-positioned Zepp your QX second on into these are markets, make tailored consumer different the of think definitely consumer sales in I whereby mini for a demand the the see, the So not software you And introductions and based consumers, know international the and So the different Christmas So tailored apps heading question product on these the would a product good on say, introductions, three and rebound of are half capture the success new the and the we season, right? markets. the that of number as as is of QX, and Black built band. time are because first on actually you your also heading it with smartwatches shopping new time are the our to is those But also Friday with have we you towards into prepare as most can number new introduction, OS, season.

But there One let quarter. the in devices then new type just minutes put hearing I a because them wearing mentioned, the the FDA the two milestone is but over-the-counter without and they issued the a States. consumer devices. small, very you the of hearing TWS sales actually in sleep Internet spend that. build aid At hearing which wear which to think hearing moment on product just is one the technology, a hearing It's problems, can as people will the notice in-the-canal you devices gained they right? is noticing other other our some then you an it. really can algorithm, a aid wear lot regulation of in-the-canal hearing factor, Wang made out aid a a allow is in sort specific that just paying And an we everybody people product devices, TWS it very aid which devices form United once have without trying for Our company the a and to have we’ve aid problem, that it, this are people achievements, on that see the on and around of hearing in street for the build the actually me innovative are August, making AI bulky. in devices that services. is traditional of few they right, lot don't The on is that the people want to

closed can the a opens companies domain, a as affluent in try a ruling self-pay to from manufacturers new States in maybe right? which bit, market, United into of also domain this disrupt like point which is Europe. aid we selling also start it's successful really to it little potential you past. probably China. more for you And also Eargo, to perspective, the in innovative company very us aid hearing later the door FDA see very So actually dominated in been was get back bring launching we the consumers the to products from a is United variable going market a was will to kind company called devices And this has and in hearing which this similar this now and on, it If market, of And listed, right? then by this market know five and And I States.

vitals we I consumers that specific or that, probably of but services, high we can help can what do into have and off is lot the for do And loop know right? think which capabilities consumer's markets of ocean help wearables is service, to hearing personalized we sleep get China. algorithm, train a have a blue other on in and they building also also you I through -- then because actually to developed of we’ve think focus better, market. think So devices, high always of to this to going the the this a we you our company an is would go to later and be hopes aid feedback to algorithm, this And is the sleep through factors So to and this can one most on being a kind right? monitored have we you take right and better different have the algorithm because towards then not apps which We Internet better devices sales. type hopes do the right? exploration of sleeping on AI wanted the business rest of have interesting need, tailor to we form lot to we have also have to actually the this very problems. And into now then is devices your do

that, the second guidance, can top last second are current we should on So don't answer quarter, than better information year I is a we the for we And think, question. regard expecting that I than year. second line the half of have, this a to our flat more with question, your say sales but or half guide based last what for

what that think I should are at. looking some you flavor give on we

Thank It's helpful. you, Leon. very

Operator, is other questions line? any the on there

no there this are time, further At No. questions.

to company return We are the going closing to for side remarks.

Thank you for once again joining us today.

you. have contact provided you Thank Relations our Zepp's further on to questions, please Investor feel contact the website. free If department through information

may You Thank your disconnect now lines. you.

attending Thank you for now today's has presentation. The conference concluded.

You may disconnect.